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Economic Update — Reviewing Q4 2020

Not even two brand-new strains of the novel coronavirus could slow the bull market down in Q4.

Despite worldwide lockdowns, a blanket of new restrictions in the United States, and even a dose of election uncertainty, the Dow and S&P 500 rose 10% and 11.1%, respectively, while the NASDAQ tacked on a 13.8% gain in the last three months of 2020.

With feelings running uneasy about another quarter of strong performance in the midst of heavy global unpredictability, it has become increasingly important to stay up to date with the latest market trends and economic data. As 2020 taught us, things can change very quickly.

Below are a few takeaways from our Q4 2020 Economic Summary. The deck, published quarterly, arms advisors and investors with the insights they need to digest from the previous quarter, and make smarter investment decisions going forward. Furthermore, the deck is built in presentation format, so you can easily leverage it when communicating with your own clients.

YCharts clients can find the full deck in the Support Center. Not a current client? Reach out to get access.

 

Asset Class Performance

Every asset class in the table below posted positive gains in 2020’s final quarter, with the exception of US Treasuries. Looking at the third column in the table, all risky asset classes outperformed all bonds, and US Small Caps took the crown for Q4’s best returner at 31.4%.

Q4 Asset Class Performance

Click to Download Asset Table

While US Growth outperformed US Value in Q3, the roles reversed in Q4, where US Value posted a 4.9 percentage point higher return than that of US Growth. Though Commodities clocked the worst full-year (YTD) returns, investors who joined the asset class after Q3’s turnaround were rewarded with a 14.5% gain.

 

Housing Market Goes Through the Roof

20-Year Housing Market Indicators

Click to Download VisualClick to Modify in YCharts

Despite being in a recession, US Existing Home Months’ Supply fell to a 20-year low in Q4. The pandemic-driven recession also helped accelerate a trend dating back to early 2016: a rising US Home Ownership rate, which went above the 20-year average for the first time in a decade. Though the rate continued to taper in Q4, home ownership remains higher than it was most of the 2010s.

Most notably, US Existing Home Sales made a quick and true V-Shaped recovery from its mid-year plunge, and surged well beyond the 20-year average to its highest level in 12 years. Existing home sales leveled off in Q4, but the housing market continues to show strong volume.

 

Normalcy Returns to Yields

Q4 marked the first time in many months that the 30 Year Treasury Rate was higher than the S&P 500’s dividend yield.

30 Year Treasury Rate vs. S&P 500 Dividend Yield

Click to Download Visual | Click to Modify Yield Comparison in YCharts

It’s a sign that the market has returned to a degree of normalcy, as it’s typical for longer-term bonds to sport more attractive yields than dividends from equities, the latter of which fluctuates based on corporate earnings, among other factors. A falling dividend yield can also signal that US equities are appreciating in value; the S&P 500’s dividend yield declined over the course of 2020 because the index rose while dividends stayed constant, or were cut.

 

2020 Winners and Losers

Now that 2020 is in the books, so are the best and worst performing names and sectors.

Click to Download Visual

The defending champion for best sector of the year, Technology, took home that award once again—the SPDR Technology Select Sector ETF posted a yearly gain of 43.6%. Energy, the worst sector of 2019, claimed that title again in 2020 as the SPDR Energy Select Sector ETF finished the year down 32.5%.

Health Care was home to some of the hottest names in 2020, with the two best performing individual names among all sectors: Novavax Inc posted an astonishing 2701.8% gain in 2020, while Vaxart Inc finished the year 1529.1% higher.

YCharts users—download the full deck in the Support Center. Not a current client? Reach out to get access.

 

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